Plan to spend, save or borrow? Who knows what to do?

For many people, what they earn will be what they spend on household bills this year and next. The FT report why , most people want to know what will happen to their savings (if they have them ) over the next few months.

This chart shows what has happened to the charge on what we earn. Remember that many pensioners “take home” less than the lower earning band for tax. Many will struggle even to service their household bills this winter.

Young people are facing rent reviews of 10%+ to meet the profit expectations of buy-to-let landlords looking to pass on the increased costs of mortgages.

Torsten Bell , writing in the FT ,has this to say

Prices will be heading higher just as temperatures plummet and families turn on the heating: the UK uses 80 per cent of domestic gas between October and March. Energy bills are on track to be three times higher this winter than last, at £500 a month.

Worst affected will be the UK’s 4mn customers on prepayment meters, who cannot spread the higher winter costs out over the year. They will be asked to find more than £700 in January alone — over half their typical disposable income. Millions will run up arrears and damage their financial health.

And thousands will risk their physical health because they cannot heat their homes. We will have to cap energy costs below market rates, so it’s time to focus on the hard questions involved Averting a winter catastrophe will require different, not just larger, interventions from the incoming prime minister.

The government’s response to date has been to insist that consumers face the true cost of energy to provide strong incentives to reduce consumption. At the same time, it has provided lump-sum discounts and payments, particularly to those on benefits, to cover some of those costs. The benefits that are already available to disadvantaged people this year are laid out by Turn2Us here.

Torsten Bell’s Resolution Foundation has argued for a radical social tariff  which it argues would be the best targeted approach for those on lower incomes seeing their bills rise most, but is harder to implement than a price cut for everyone. Borrowing will take a lot of the strain but windfall and solidarity taxes should be imposed if we are to reduce bills significantly without forcing the Bank of England into even bigger interest rate rises.

But such a measure will take time to set up and time is not something that is on our side (any more). The last five weeks have been wasted weeks while our potential leaders argue what they might do. What we need to see is what they will do.

I hope that Liz Truss will not use her almost certain victory in the leadership election to make radical changes in departments of state. The junior ministers , such as Guy Opperman in pensions, will be called upon to ensure that state policy is delivered, we need experience and competence, not a new broom. This is no time for political experiments.

Spend, save or borrow?

To plan, we need to understand what we can save – on what we can spend and whether we need to borrow. Making decisions without certainty of what state support we will receive is impossible. We urgently need Government for we have none right now.

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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